Flaherty backs away from income splitting

Late last month I wrote here about the oddly casual way Finance Minister Jim Flaherty had taken to talking about a wide range of important matters, from internal divisions in the Conservative caucus over how much to spend, to the Canada Job Grant, and even the future of the Senate.

My point was that Flaherty increasingly stands out in a government otherwise characterized by, above all else, rigid discipline on messaging. “If he keeps this up, it will be worth listening very closely to Flaherty when he tables his Feb. 11 budget and in the days to follow,” I concluded, adding, “The script doesn’t seem to mean all that much to him these days.”

Well, I was wrong about one thing: We actually needn’t listen all that closely. Flaherty has made it impossible for even the most casual listener to fail to hear him venturing far, far away from the government’s approved talking points. I refer, of course, to his remarks this morning on the signature Conservative plan to allow couples to split their incomes when it comes to paying taxes.

“It’s an interesting idea. I’m just one voice. It benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all,” Flaherty said. Every short sentence in that bracing quote deserves a quick parsing.

1. “It’s an interesting idea.” That’s true, but hardly complete description. More accurately, income splitting is a policy commitment that Stephen Harper described, during his triumphant 2011 election campaign, as “one of our highest priorities” as soon as such tax breaks became affordable, after the projected balancing of the federal budget in 2015-16.

2. “I’m just one voice.” Again, accurate in some narrow sense, but not a well-rounded description of reality. James Michael Flaherty is the one and only finance minister in the eight-years-and-counting history of the Harper government. He was named, as his admirers like to mention, “finance minister of the year” by EUROMoney Magazine in 2009, the year of the Great Recession, when being a good finance minister really mattered. There is no one voice that carries more weight on federal tax policy.

3. “It benefits some parts of the Canadian economy a lot.” Right. Those in best position to benefit are couples with one partner earning a lot and the other not very much. A study by the Canadian Centre for Policy Alternatives—granted, a left-wing think-tank that’s reliably critical of Conservative policy–suggests the richest five per cent of families, with income more than $147,000, would on average benefit by $3,100 a year.

4. “And other parts of the Canadian population virtually not at all.” That same Canadian Centre for Policy Alternatives analysis forecast that the average benefit for the bottom 60 per cent of Canadian families, making $56,000 or less, would be $175.

Those numbers are not definitive. Other experts should wade in. Flaherty described himself as bringing an “analytical” approach to the cabinet table. Beyond the obvious political awkwardness for the Prime Minister that this latest outburst of frank talk from his most senior minister presents, maybe there really is an opportunity here to spark some serious, wonkish debate, with figures flying and theories vying.

Which is as it should be. Flaherty’s style sounds eccentric today. If only it could catch on.

Flaherty backs away from income splitting

Or pushing to the front of the queue to take over, however deluded that may seem right now? I wonder if this gives someone like Kenney some leverage to try and pry him out the door before ’15? Or is the “best FM in the world” unassailable?

Sounds familiar from a few years back about trusts and yesterday one of the opposition M.P.s suggested we are back to the Mike Harris, Ontario finance minister finale. We will see the surplus when we see the books.

Yeah Flaherty cooked the books in ON. Said a $5.6B deficit was a balanced budget. Given the Harper Governments Soviet-style government secrecy, Canadians will never learn what’s really going on until we get rid of these incompetents.

It’s smarter to cut income taxes than complicate the tax code with boutique tax cuts that target votes instead of economic performance — especially a social con tax cut that makes middle-class families carry the load of wealthy ones. Is it really inconceivable that a Conservative could take a stand on principle?

One has to wonder if Mr. Flaherty is asking to be pushed out. Nobody contradicts government policy without reprimand. To openly display cabinet insolidarity is a sin in any government, and especially in this one. It’s hard to know if Mr. Flaherty is making a statement that the hard-core conservatives don’t entirely rule the roost in this party, or if he’s found his heart, or if he’s lost his mind.

Over the years I’ve found Mr. Flaherty one of the most forthright government members. His words are for the most part worth listening to, as opposed to the trained seals who simply repeat the PMO issued talking points ad nauseum. I hope Mr. Flaherty sticks around for a while longer and continues to be honest with us.

I know a lot of single people who would view this differently. A married person with kids making $147K shouldn’t be taxed at a lower rate than an unmarried person without kids making $147K. It’s basic fairness.

I also seem to remember a Tory cabinet minister explaining recently that it’s not his job to help you feed YOUR kids.

Single people need to come to grips with the fact that children are needed in order to keep society going. Raising children takes a lot of effort and costs a lot of money, but yields benefit for society as a whole (on the most basic level because those children become society.) The same single people probably also complain about the unfairness of having to pay for public school through their property taxes when they don’t have kids. The fact that they A) went to school themselves at one point, and B) need a well-educated population to keep the country running never seems to enter the calculation.

One of the other galling things that make it out of step is that
families with two working parents who earn close to the same amount
don’t generally benefit either.

Say you have three families,
each one of two parents and one child. In the first family, one parent
makes $90,000 and the other is a stay at home parent. The second family
also makes $90,000 but from two salaries of $45,000 each. The third
family is scraping by on $11,000.

The government will be
distributing money amongst these families. How should they do it? if
you said “give all the money to the first family with the one 90K
earner, and give nothing to the other two” congratulations, you agree
with the Harper plan on income splitting.

Really the only thing we need experts for is the actual data regarding how many people are earning what, in what kind of situation. that its poorly designed, benefits only a few and those who likely need it least, and scales better the more $ you have, is obvious to the layperson.

If the family with the 90-0 income distribution is allowed to redistribute the income to a 45-45 split, they will then pay the identical amount of taxes to the family who already has the 45-45 split. How is this “giving all the money” to the family with the 90-0 income distribution? As it stands right now, the family with the 90-0 split is paying an additional $2000 – $3000 in federal tax that the 45-45 family is not. Income splitting gets rid of this inequality.

True; in this single scenario, you are actually levelling the playing field in terms of the amount of tax paid by two families with the same gross income but differently distributed between earners.

Though looked at more broadly, it still likely gives a real-world financial edge to the 90-0 couple, if the children in each family are young, as with one parent not working the 90-0 couple likely would have no need for daycare, whereas the other couple would. And then there’s the cost of getting to work, etc.

To be fair, there’s no way any government policy can take every situation into account when planning a taxation model. But I think Flaherty is right to be questioning the value of this particular promise. They have abandoned much more important policies in the past.

Indeed, having a free parent available to full time child-rear has to be considered an enormous value. The single earner family has the same $, but they’re better off than the two incomes of 45K family.

A family that has a 90-0 income split is objectively wealthier than one that has 45-45 because the first couple has a person who could work and chooses not to, perhaps to stay home and care for children (providing value to the family that the second couple could not match).

This is just as I am objectively wealthier than my brother-in-law and sister who together earn a bit less than I do.

The non-working spouse may choose not to work. Or he/she may be unable to work due to health problems. Or may have recently lost their job and endure a long period of unemployment. There are many scenarios. The point is, salary earners can do almost nothing right now to redistribute their their earnings to make them more tax efficient. The amount of tax they pay is thus dependent on how their income just happens to be distributed, with no control over that distribution. We all choose our careers, but we don’t generally choose our incomes.

Business owners, on the other hand, have been redistributing income to other family members (and not just spouses) forever, through all manner of legal means (I’ll ignore the illegal means here). And I haven’t even touched on family trusts, which fortunately this budget seems to have clamped down on. I really don’t see the logic of not allowing middle-income salary earners the opportunity to shift some income between them for the purposes of tax efficiency, since the household functions for the most part as a single economic unit anyway. Also, any proposal for income splitting must also recognize single parents – they should be allowed to split income with a child, who can be designated as a fill-in for the non-existent spouse for tax purposes.

Progressive taxation remains, even under an income splitting scenario. You are just changing the unit being taxed from the individual to the couple. A higher income couple will still be in a higher bracket. And income splitting will be capped at $50,000 or so, which will limit the amount that can be split.

but one is changing the taxation unit specifically to avoid progressivity. as hinted below, its better to allow deductions for children and keep the system as it is, rather than have a system which rewards some based on discrepancy in family income.

GFMD on February 12, 2014 at 3:01 pm

Deductions would do nothing to improve progressivity over joint filing. A deduction comes off the top of your income, where you pay the highest marginal tax rate.

And I disagree with your last sentence. Joint filing eliminates a natural discrepancy in the progressive tax system. It does not reward a discrepancy.

Raging Ranter on February 12, 2014 at 3:20 pm

your mistake is assuming that household rather than individual income is the natural and better basis for tax.

GFMD on February 12, 2014 at 4:14 pm

It’s not a mistake, it is very deliberate, and for good reason. The same reason almost all means-tested benefits, from the GIS to the Canada Child Tax Credit, are based on family, not individual income. Joint filing is already a reality for anyone claiming government benefits.

Raging Ranter on February 12, 2014 at 4:41 pm

OK, but under income splitting family with a stay at home parent would have an extra $2000-$3000 to pay for daycare that they don’t need, and the family with two parents working outside of the home who actually NEED daycare, don’t.

And therefore would not be able to avail themselves to the nearly $8000 allowable deduction per child for childcare, because they wouldn’t have any childcare expenses. There is already a large deduction to take care of that.

A single person only has one person to support on that income. A couple has two people to support. Since we’re talking about widows here, I assume you’re talking about pension income splitting for seniors.

In my response below, which for some reason is stuck in moderation, I mentioned that single parents should be allowed income splitting. A single parent would be allowed to designate one child as the “spouse” for tax purposes. In that case, your example becomes yet another reason why we should have income splitting. It already works this way in France, were income is split not only with spouses, but with all children.

Raging Ranter on February 12, 2014 at 1:38 pm

At this point surely it’s jsut better to give deductions for child care expenses, which we already do.

GFMD on February 12, 2014 at 1:53 pm

The daycare deduction only applies for kids 6 or less. If you’ve got kids any other age, that deduction is not available to you.

Raging Ranter on February 12, 2014 at 2:02 pm

Alterations can be made if we wish them, we’re talking generally.

GFMD on February 12, 2014 at 2:59 pm

Is there any evidence we’ve heard that suggests it would work that way here?

Thwim on February 12, 2014 at 2:08 pm

If they don’t allow single parents to designate a child as “spouse” for splitting purposes, I’m guessing the law will quickly be shot down with a charter challenge. Since it is a policy targeted at families with kids, if single parents are expressly excluded by default, I can’t see it surviving a charter challenge. Maybe that’s why they’re backing down. Maybe they hadn’t counted on that until the government lawyers brought this to their attention, and now the price tag will be significantly higher than $2.5 billion? Who knows?

Raging Ranter on February 12, 2014 at 2:55 pm

I’m guessing you’re wrong about the Charter challenge.

GFMD on February 12, 2014 at 4:16 pm

That may somewhat ameliorate the inequity – though odds are good it won’t be included when / if they roll out the income splitting.

KeithBram on February 12, 2014 at 5:18 pm

You’re not wrong, but in this situation I’m prepared to concede to the government that the issue is about redistributing a certain amount of $ amongst families.

It’s happened before. They overturned the tax laws governing child support in the late 1990s. That itself was a form of income splitting, allowing the payer to deduct the expense, and the parent receiving the money to pay the taxes. The judge’s decided it created too many inequities in support awards, because family courts simply weren’t able to make determinations on the tax consequences consistently enough, so they forced the government to rewrite the law.

The widowed mother has two choices…..elect to claim one child as equivalent to married OR file articles of incorporation and make each member of the family a share holder who gets a share of the income in the form of dividends.

Do we have our serial leaker perhaps? Next up, Jumbo wonders if pot should be legal perhaps?
I really don’t think it would be any more shocking to the Harperclowns…from their pov the most unforgivable thing he did was to call for some serious analysis on this. That’s like the Pope calling for a serious analysis of the value of marriage as an institution.

I predict Flaherty will stick around for one more budget – the one in which he’ll claim to have definitively slain the deficit – after which he’ll announce his intention not to contest the following election. By then, he will be pushing 66, too old to aspire to party leadership, and getting late if he wants to land some lucrative board appointments and/or a sweet consultancy role in a 5 star accounting or legal firm.

The surprising eruptions of candour are a classic characteristic of end-game behaviour.

Nice to see a healthy debate going on between adults here. In case you haven’t noticed, the non participant who’s voting every single person down[ other than RR – not his fault] is that first class ass Omen.

You can’t. I just happened to pass through as everyone who engaged RR went down[ including all the other commenters Rick locks horns with] while Rick’s name came up on all the thumbs up on the other side…if that makes sense at all?
I’ve noticed him do this before…what makes you think i spend too much time here eh.

I swear Rick gives me the thumbs up within ten seconds of my post going live. I have no idea how he does this, but it’s flattering. Maybe he’s got some kind of crawler program that does the work for him. If that’s the case, I wish he’d share it. It gets tiresome reflexively voting Emily down all the time.. that’s 12,798 mouse clicks. I want my life back!

For the record, I haven’t thumbed anyone in this thread. I usually don’t unless they call me monkey or question my welding skills or something. Then I get nasty…. and the thumbs come out.

Rick or whatever his name is has a man crush on anything Conservative or just not Liberal. Afraid I’ find it easier to just ignore or tolerate E than Rick. Who’s a full blown troll when it comes down to it.

I’ll have to disagree there. I find Rick fairly innocuous. He shows up, calls someone a Libtard, or a leftist, and that’s pretty much it. Compared to the toxicity of E (or Ron Waller, who sadly has just entered the fray above, meaning civility is out the window) shoving their imaginary expertise down everyone’s throats, it’s no contest. If all Em ever did is call me a CON!, I’d be thrilled. She’s just so much more poisonous than that. Her ability to derail a discussion is legendary.

I know what you mean about E, she scares the crap out of me so I tend to avoid debating her. Still I find she can be reasoned with, perhaps because we both sit on the same side of the politcal centre.
I’m afraid I’ve had bad experiences with Rick
,such as bizarre allegations I post spyware. Mostly I can’t stand someone who won’t admit they don’t know or might be wrong( doesn’t matter what their political affiliation ) its probably my fault to some extent for taking him too seriously. My weakness is I deeply dislike someone who argues merely to win at all costs. No body’s perfect I guess.

kcm2 on February 12, 2014 at 10:02 pm

I’m fine if you qualify CCPA as “a left-wing think-tank that’s reliably critical of Conservative policy” but let’s make sure you also label the many other institutes that are ideologically predictable.

We must all devoutly wish that the young,genius Pierre Pollievre is suddenly elevated to finance. At least he can stick like a barnacle to the GD talking points. And, also, Finance would have longer arms, sharper teeth and…um… a spiky tail…or something!

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